It was better than -6%, yes. But it certainly wasn’t as good as it looked.
A misguided Cash-for-Clunkers added a one-time contribution of 1.66 percentage points to GDP. Auto sales have since collapsed so all the program did is move some demand forward.
Government spending increased at 7.9 per cent in the third quarter which is certainly nothing to cheer about.
Personal income decreased $15.5 billion (0.5 per cent), while real disposable personal income decreased 3.4 per cent, in contrast to an increase of 3.8 per cent last quarter. Those are horrible numbers.
The savings rate is down, which no doubt has misguided economists cheering, but people spending more than they make is one of the things that got us into trouble.
The only bright spot I can find is exports. However, even there we must not get too excited as imports rose much more.
I am struggling to understand what is surprising other than how bad this all looks once you break down the numbers. The government sloshed trillions around and yet disposable income is down, jobs are horrendously weak, and the only reason GDP rose is wasteful government spending, cash-for-clunkers and extremely unaffordable housing tax credits whose effect is soon going to start diminishing even though the program was just extended.
John Williams notes that one-time stimulus or inventory items represented 92% of the reported quarterly growth. The nature of the stimulus-related gains was that they tended to steal business activity from the future. The months ahead are the future. Accordingly, fourth-quarter quarterly GDP change will likely turn negative, again. (The King Report)
And David Rosenberg writes: “Only economists see the recession as being over; the man on the street sees it a little differently, perhaps less enthused by the fact that a lower rate of inventory destocking is arithmetically underpinning GDP growth at this time. Put simply, a Wall Street Journal/NBC News poll just found that 58% of the public believe the economic recession still has a ways to go — and that is up from 52% in September and means that the private investor, unlike the hedge fund manager, is not interested in adding risk to the portfolio even after a 60% surge in the equity market.
“Only 29% of those polled believe the economy has hit bottom — imagine having that psychology with nearly zero interest rates, a bloated Fed balance sheet and unprecedented fiscal deficits (poll was taken from October 23-25). Nearly two in three (64%) said the rally in the stock market (still a bear market rally — not the onset of a new bull market) has not swayed their view (or ours for that matter).”